FSOC: Congress should boost Ginnie, FHFA nonbank authorities

Recommendations
in
a
new
Financial
Stability
Oversight
Council
report
could
give


nonbank
mortgage
servicers
more
of
a
liquidity
backstop
but
may
also
lead
to
them
being
more
closely
regulated.

The
report
discussed
at
an
FSOC
meeting
on
Friday
calls
for
Congress
to
provide
the
Federal
Housing
Finance
Agency
and
Ginnie
Mae
with
additional
authorities
aimed
at
improving
their
ability
to
manage
nondepository
counterparties.

It
also
included
calls
for
the
expansion
of
the
Pass-Through
Assistance
Program
that
Ginnie
Mae
used
as
an
emergency
facility
during
the
pandemic,
congressional
involvement
and
an
industry
funded
liquidity
resource.

A
fund
financed
by
the
industry
could
help
sustain
a
troubled
nonbank
long
enough
to
transfer
servicing
to
a
capable
party
in
an
emergency
while
avoiding
taxpayer-supported
bailouts,
supporters
like
Treasury
Secretary
Janet
Yellen
said
in
a
statement
Friday.

However,
officials
from
some
regulatory
bodies,
while
backing
other
recommendations,
advised
caution
around
more
ambitious
efforts
in
the
report
like
the
industry-funded
facility.

“The
FSOC’s
recommendation
to
establish
a
nonbank-financed
liquidity
fund,
administered
by
a
newly
authorized
federal
regulator,
is
premature
at
best,”
said
Brandon
Milhorn,
president
and
CEO
of
the
Conference
of
State
Bank
Supervisors,
in
a
press
statement.

Milhorn
showed
concern
about
the
potential
for “unintended
consequences”
that
could “negatively
impact
the
nonbank
mortgage
market,”
calling
for
a
go-slow
and
well-researched
approach.

“Instead,
federal
agencies,
Ginnie
Mae
and
Congress
should
focus
their
immediate
attention
efforts
on
targeted
structural
changes
included
in
the
FSOC
report,”
he
said. “I
encourage
Congress
to
remove
any
legal
impediments
to
information
sharing
between
Ginnie
Mae
and
state
regulators.”

In
a
separate
statement
distributed
by
CSBS,
Superintendent
Adrienne
Harris
of
the
New
York
Department
of
Financial
Services
weighed
in
on
a
recommendation
that “state
regulators
require
the
largest
nonbank
servicers
adopt
recovery
and
resolution
plans.”

Harris
said
that
the
plans
could
be
constructive
for
nonbank
mortgage
servicers
if
they
are
not “a
one-time
exercise
left
to
sit
on
a
shelf
collecting
dust
until
a
crisis
strikes.”
The
plans “must
be
practical,
actionable,
tested
and
kept
up
to
date,”
she
said.

One
early
industry
reaction
to
the
report
from
the
Community
Home
Lenders
of
America
suggested
that
a
permanent
and
expanded
version
of
the
last-resort
PTAP
program,
as


Ginnie
itself
has
recommended
in
the
past,
would
be
welcomed.

“We
are
pleased
that
FSOC
has
embraced
CHLA’s
longstanding
call
to
expand
PTAP
which
would
create
a
liquidity
backstop,”
CHLA
Executive
Director
Scott
Olson
said
in
a
press
statement.

FSOC “identifies
sensible
opportunities
for
structural
reform
to
the
Ginnie
Mae
program
while
highlighting
Ginnie
Mae’s
ongoing
effort
to
expand
liquidity
options
and
relieve
liquidity
pressure
on
issuers,”
said
Bob
Broeksmit,
president
and
CEO
at
the
Mortgage
Bankers
Association.

However,
the
mortgage
industry
has
historically
been
wary
of
other
FSOC
intervention
amid
efforts
to
characterize
the
increased
nonbank
presence
within
it
as
a
potential
systemic
risk.

“We
share
FSOC’s
goals
of
a
safe,
stable,
and
sustainable
financial
services
marketplace,
but
some
of
the
report’s
recommendations
are
unnecessary,”
Broeksmit
said.

“While
we
support
national
standards
for
capital
and
liquidity
requirements,
layering
duplicative
supervision
requirements
or
supervisory
entities
onto
a
heavily
regulated
market
will
add
significant
cost
and
complexity.
Managing
such
changes,
should
Congress
require
them,
could
lead
to
reduced
appetite
for
mortgage
servicing,”
he
added.

That,
combined
with
a
pending
bank
capital
proposal
could
drive
depositories
further
out
of
the
mortgage
market
and
have
an
adverse
impact
on
the
market,
Broeksmit
added.

Agencies
that
more
specifically
manage
nonbank
counterparties
like
Ginnie
and
FHFA
called
the
current
report
balanced
in
acknowledging
servicers’
risks
while
also
stressing
their
benefits.

Many
nonbanks
do
tend
to
be
monoline
entities
focused
on
single-family
housing
finance
and
may
be
vulnerable
to
swings
in
the
volatile
valuations
of
mortgage
servicing
rights.
They
advance
some
payments
on
behalf
of
delinquent
borrowers
and
support
a
mortgage-backed
securities
market
that
helps
fund
a
wide
swath
of
affordable
housing
in
the
United
States.

“The
FSOC
report
calls
attention
to
the
strengths
of
nonbank
mortgage
servicers,
including
their
commitment
to
the
mortgage
market
and
to
supporting
sustainable
homeownership
for
historically
underserved
populations,
along
with
several
structural
vulnerabilities,”
FHFA
Director
Sandra
Thompson
said
in
a
statement.

“I
am
particularly
encouraged
that
the
FSOC
recommends
Congress
consider
providing
FHFA
with
additional
authority
to
establish
appropriate
safety
and
soundness
standards
for
nonbank
mortgage
servicing
and
to
directly
examine
for
compliance
with
these
standards,”
Thompson
added,
referring
to


a
longstanding
agency
proposal
that
the
report
backs.

Some
of
the
entities
FHFA
regulates
have
been
wary
of
an
expansion
of
its
authority.

Rohit
Chopra,
director
of
the
Consumer
Financial
Protection
Bureau,
also
showed
interest
in
more
closely
regulating
nonbank
servicers
in
his
remarks
at
the
meeting
on
Friday,
citing
previously
mentioned
areas
of
scrutiny
the
CFPB
has
been
targeting
like

“junk”
fees
and
credit
reporting.

He
additionally
noted
interest
in
further
reforms
around
distressed
mortgage
servicing
and
foreclosure
prevention
that
would
move
regulation
away
from
a “check
the
box”
exercise.
(A
court
challenge
to
the
CFPB’s
funding
structure
is
pending.)